China Stocks Rise Most in Week After Fed Boosts Asset Purchases

China’s stocks rose, driving the
benchmark index’s biggest gains in a week, after the Federal
Reserve said it will buy mortgage securities to boost growth in
the world’s biggest economy.

Zijin Mining Group Co. (601899) and Jiangxi Copper Co., China’s
biggest producers of gold and copper, advanced more than 2
percent as the Fed’s debt purchases bolstered the outlook for
metals demand. Anhui Jianghuai Automobile Co. (600418), a unit of the
biggest light-truck exporter, surged the most in almost four
months on a share repurchase plan. China Vanke Co., the nation’s
biggest listed property developer, slid 1 percent after the
China Securities Journal said regulators are monitoring high-
priced government land sales.

“The Fed’s new round of bond purchases will reduce the
risk premium for risky assets,” said Wang Weijun, a strategist
at Zheshang Securities Co. in Shanghai. “Money will probably go
to emerging markets and boost asset prices there because of
ample global liquidity. That’s very positive for stocks.”

The Shanghai Composite has fallen 3.4 percent this year on
concern the government isn’t loosening monetary policy or
introducing stimulus policies fast enough to counter the
slowdown in the economy. It’s valued at 9.7 times estimated
earnings, compared with the 17.4 average since Bloomberg began
compiling the weekly data in 2006. The MSCI Asia Pacific Index (MXAP),
up 2.4 percent today, trades at 12.8 times estimated earnings.

QE3

The Fed said it will expand its holdings of long-term
securities with open-ended purchases of $40 billion of mortgage
debt a month, known as quantitative easing. The central bank
will continue its purchases of mortgage-backed securities and
undertake other asset purchases if the outlook for the labor
market doesn’t improve substantially, the Federal Open Market
Committee said yesterday in a statement at the end of its two-
day meeting in Washington.

The FOMC also said it would probably hold the federal funds
rate near zero “at least through mid-2015.”

The MSCI Emerging Markets gauge jumped 80 percent in the
first period of debt purchases from December 2008 to March 2010,
while developed stocks rose 35 percent, Citigroup Inc. said last
month. The measure of developing stocks rose 19 percent in the
second QE period between August 2010 and June 2011.

Chinese stocks may see short-term rallies on stimulus
policies and easing uncertainty in the leadership transition in
China, while there are upside risks from global liquidity
loosening such as QE3, Macquarie Group Ltd. analysts including
Chen Shao said in a report dated yesterday.

Metal Producers

State-run media reported on the activities of Xi Jinping
for the first time since Sept. 1 yesterday, signaling that the
leadership was seeking to counter speculation his absence would
disrupt the once-in-a-decade transfer of power. Xi is forecast
to become China’s next president and general secretary of the 82
million-strong party in a leadership change later this year.

An index of material stocks in the CSI 300 jumped 2.1
percent today, the most among the 10 industry groups.

The Standard & Poor’s GSCI Spot Index of 24 raw materials
rose 0.6 percent to settle at 687.22 yesterday. Earlier, the
gauge reached its highest since April 5. The measure climbed for
the sixth straight session, the longest rally since July 19.
Silver and gold gained the most in 10 weeks, leading the rally.

Rare-Earth Mining

Metal stocks were upgraded to overweight from neutral by
Shenyin & Wanguo Securities Co. today. Commodity markets will
benefit from QE3, Ye Peipei, an analyst at the Shanghai-based
brokerage, wrote in a report.

China issued 67 permits, compared with 113 previously, the
Journal said yesterday, citing an announcement from the Ministry
of Land and Resources. In July, the ministry announced it would
reduce the number of permits to encourage consolidation in the
industry, the newspaper said.

Anhui Jianghuai jumped 6.3 percent to 4.89 yuan, its
biggest gain since May 28. The automaker said it plans to buy
back as much as 300 million yuan of its shares for 5.20 yuan
each.

The land ministry is targeting overly high price premiums,
excessively high minimum bidding prices and the pace of
residential and corporate land development, the China Securities
Journal reported today, without saying where it obtained the
information.

China’s economic growth slowed to 7.6 percent in the three
months through June, the least since 2009, as a crackdown on
property speculation damped domestic demand.

The Shanghai Composite posted its fourth weekly decline in
five weeks after trade data missed estimates and industrial
output grew at the slowest pace in three years.

The growth slowdown is set to deepen to a 23-year low next
year as the nation’s export- and investment-led expansion wanes,
according to Pacific Investment Management Co., which manages
the world’s biggest bond fund.

Thirty-day volatility in the Shanghai Composite was at 15.8
today, compared with this year’s average of 17. About 9.1
billion shares changed hands in the gauge today, 17 percent
higher than the daily average this year.